The Canadian dollar weakened after the Bank of Canada (BoC) announced its first interest rate cut in years and officially ended its quantitative tightening (QT) program. The move reinforced expectations that the central bank is shifting toward a more accommodative policy stance, putting pressure on the loonie as traders adjusted their positions.
The BoC’s rate cut, widely anticipated by markets, came as policymakers cited easing inflation and slower economic growth as key reasons for their decision. By ending QT, the bank signaled a commitment to maintaining financial stability while ensuring borrowing conditions remain supportive. However, the rate reduction also widened the policy gap between the BoC and the Federal Reserve, which has kept rates steady.
Following the announcement, USD/CAD climbed, reflecting a weaker Canadian dollar as investors priced in the impact of looser monetary policy. The U.S. dollar remained resilient, bolstered by strong economic data and expectations that the Fed will hold rates higher for longer. This contrast in policy direction has fueled additional selling pressure on the loonie.
Despite the decline, some analysts believe further BoC rate cuts may not come as quickly as markets expect. The central bank has emphasized the need to monitor inflation trends, labor market conditions, and global economic risks before committing to an extended easing cycle. If economic data remains steady, the BoC could opt for a gradual approach rather than an aggressive rate-cutting path.
Looking ahead, traders will closely watch upcoming Canadian economic indicators, particularly inflation and GDP growth figures, for clues on the BoC’s next steps. Meanwhile, developments in the U.S. economy and any shifts in the Fed’s stance will play a key role in determining the broader trajectory of the Canadian dollar.
For now, the loonie remains under pressure, with investors reassessing its outlook amid a clear shift in the BoC’s policy direction. The path forward will depend on economic data and central bank signals, keeping CAD traders on alert for further volatility.
